Harmonization of Accounting Standards

Harmonization of Accounting Standards

Harmonization of Accounting Standards

The economy is growing and forever getting more and more diversified. No longer is business looked at in the local or even national sense, but rather on a worldwide level. With businesses around the world using different methods of accounting it is impossible to have a level playing field. The topic of Harmonization is becoming bigger, and the call for harmonization is becoming real. Harmonization, in accounting, is the process and having International Accounting standards followed everywhere throughout the world. This is also known as IFRS(International Financial Reporting Standards).

IFRS strives to maintain a level playing field throughout the world allowing the gains from the global economy to be fully realized. The harmonization will better the global economy by: "facilitating international transactions and minimizing exchange costs by providing increasingly "perfect" information; by standardizing information to world-wide economic policy-makers; by improving financial markets information; and by improving government accountability. International investment decisions and financial-based management decisions are then made with less risk." (Cameron M Weber, Harmonization of international accounting standards). The IFRS will help the global economy make decisions on a fair playing field with equally represented information.As stated, Harmonization of accounting standards in the form of IFRS is a much-needed in the world. The greatest benefit that would flow from harmonization would be the comparability of international financial information. Such comparability would eliminate the current misunderstandings about the reliability of foreign financial statements and would remove one of the most important impediments to the flow of international investment. Harmonization would save time and money that is currently spent to consolidate divergent financial information when more than one set of reports is required to comply with the different national laws or practice. It will also improve the tendency for accounting standards throughout the world to be raised to the highest possible level and to be consistent with local economic, legal and social conditions. Harmonization would also benefit those countries without an adequate or substantial form of accounting or auditing procedures by providing a set in stone system. Companies with a foreign subsidy will benefit by keeping the company on the same accounting system. Companies in search of foreign capital will also benefit from harmonization because foreign investors and leaders will be able to understand accounting reports and act upon the information. Though it is clear that a change is needed, it is not always the easiest thing to produce a global change. The UK has made a huge step in requiring its companies who follow the UK's GAAP(Generally Accepted Accounting Principles) to switch to IFRS in 2005. Since then, most of the EU nations have made the switch to IFRS.The rapidly foreign acceptance of IFRS is challenging for U.S. companies, since in 2005 almost ten percent of companies traded on the New York stock exchange were non-US and the number is growing. The U.S. companies are required to either use the U.S. GAAP or the IFRS system of accounting. In the recent years more and more big companies are either using IFRS or providing both U.S. GAAP and IFRS reports as to compete in the global market. Companies are required to show IFRS reports in order to obtain permits or even raise capital in foreign countries. Although considerable progress has been made thus far, convergence of IFRS and U.S. GAAP is far from complete. Some of the differences still under review include accounting policies, construction contracts, investments in joint ventures, interim financial reporting, and research and development costs.The obstacles pertaining to harmonization is the numerous present differences between the accounting practices of different countries, lack of strong professional accountancy bodies in some countries, and the differences in political and economic systems. Nationalism also poses a threat to harmonization as countries are afraid of giving the control of their accounting regulations to another person's regulations, especially if it is perceived as replacing their own accounting regulations with those of other countries. There are other barriers to harmonization as well. For example, nations might have different needs in countries that have different activity on stock markets and those where banks primarily accumulate and invest capital. There are also countries that put more or less interest on the multinational businesses but rather on the small businesses.As the economy continues to grow there will always be a bigger need for harmonization. Although much work has been done in making this goal a reality there is still a lot of work to be done. Through a long process slowly the world is switching the IFRS and it is predicted that in the future IFRS will be the required accounting standard worldwide. Harmonization is the future in the accounting field. Putting the world on a level playing field and presenting data accurately as a whole will do much to boost foreign business. Though there are obstacles every year Harmonization through IFRS is one step closer. http://www.articlesbase.com/international-business-articles/harmonization-of-accounting-standards-3672631.html

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